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LMF Acquisition Opportunities, Inc. (LMAO) Adds Purchase Agreement to SeaStar Deal
by Marlena Haddad on 2022-10-17 at 2:23pm

LMF (NASDAQ:LMAO) announced this afternoon that it has entered into a prepaid forward agreement with Vellar Opportunity Fund a day before its vote to seek shareholder approval for its combination with clinical biotech firm SeaStar Medical.

As part of the equity prepaid forward transaction, Vellar may purchase shares of LMF common stock, from holders other than LMF or affiliates of LMF, including from holders who have previously elected to redeem. While Vellar does not have an obligation to actually purchase any shares under the agreement, the total “recycled shares” cannot be more than 1,500,000 shares.

Further, Vellar has agreed to hold the recycled shares in a bankruptcy remote special purpose vehicle for the benefit of LMF until the closing of the proposed merger. Additionally, Vellar is not allowed to beneficially own more than 9.9% of issued and outstanding shares following the business combination.

The prepaid forward agreement also provides that Vellar will be paid directly, out of LMF’s trust account, a cash amount equal to the number of shares multiplied by the per-share redemption price. This will be done no later than the earlier of one local business day after the closing and the date any assets from LMF’s trust account are disbursed in connection with the transaction.

In addition to the prepayment amount, Vellar will also be paid an amount equal to the product of 100,000 multiplied by the redemption price for the purpose of repayment, prior to the closing, 100,000 additional shares from third parties in the open market through a broker. These shares will not be included in the number of shares under the forward agreement, and the additional shares will be clear of all obligations of Vellar.

Furthermore, Vellar is allowed to sell the recycled shares that it purchases. The counterparty is entitled to proceeds from the terminated shares equal to the product of the number of terminated shares multiplied by the reset price. Following the closing, the “reset price” will be $10.00 per share, but will be adjusted on the last scheduled trading day of each month starting on the first calendar month following the closing to the lowest of the then-current reset price, $10.00 and the VWAP of the last ten trading days of the prior calendar month. But, this cannot be lower than $5.00, provided, however, that to the extent the counterparty sells any shares or securities or any of their respective subsidiaries which would entitle the holder to acquire shares, or otherwise entitles the holder to receive, shares, at a price less than the existing reset price, then the reset price will be adjusted to equal such reduced price.

The maturity date of the transaction will be the earliest to occur of the third anniversary of the closing and the date following the effective date specified by Vellar. This will be done in a written notice following any occurrence during a 30 consecutive trading-day period, the VWAP for 20 trading days is less than $3.00 per Share. Upon the occurrence of maturity, the counterparty is obligated to pay to Vellar an amount equal to the product of the maximum number of shares less the number of terminated shares multiplied by $2.50.

The maturity consideration will be payable by the counterparty, in cash or shares based on the daily VWAP Price over 30 trading days ending on the maturity date to the extent the shares used to pay the maturity consideration are freely tradable by Vellar, or if not freely tradeable, the date on which the shares used to pay the consideration are registered and delivered to Seller.

The agreement may also be terminated under certain circumstances and if the proposed merger is terminated, there will be a break-up fee equal to all of Vellar’s out-of-pocket reasonable fees, costs and expenses relating to the business combination without a cap, plus a $1 million break-up fee will be payable by SeaStar Medical.

The prepaid forward agreement comes nearly two months after LMF entered into a $100 million common stock purchase agreement, a registration rights agreement, and secured a $7 million PIPE for its combination with SeaStar Medical.

The parties entered into a purchase agreement and registration rights agreement with Tumim Stone Capital LLC back in August, but their respective obligations under the purchase agreement will not become effective until the business combination closes. Additionally, LMF and SeaStar must meet certain deliverables and amendments under the agreement.

In regards to the PIPE, LMF entered into a subscription agreement with “certain third-party investors” for 700,000 shares of Class A common stock at $10.00 per share, and warrants to purchase up to 700,000 shares of the Class A Common Stock for $7 million. The PIPE Warrants will be exercisable starting on the closing date at $11.50 per share.

LMF and SeaStar originally announced their $85 million deal in April 2022, but did not supplement it with a PIPE at the time. The parties later entered into a commitment letter with Dow Employees’ Pension Plan Trust and Union Carbide Employees’ Pension Plan pursuant to which Dow agreed to a PIPE equal to or greater than $5 million which would close immediately prior to the closing of the deal. Denver-based SeaStar is developing a therapeutic method to address hyper-inflammation with particular applications in treating COVID-19 patients.

 

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